Corporate Restrictions in Mexico and the United States Dennis Rios University of Georgia School of Law
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Digital Commons @ Georgia Law LLM Theses and Essays Student Works and Organizations 1-1-2007 Corporate Restrictions in Mexico and the United States Dennis Rios University of Georgia School of Law Repository Citation Rios, Dennis, "Corporate Restrictions in Mexico and the United States" (2007). LLM Theses and Essays. 87. https://digitalcommons.law.uga.edu/stu_llm/87 This Article is brought to you for free and open access by the Student Works and Organizations at Digital Commons @ Georgia Law. It has been accepted for inclusion in LLM Theses and Essays by an authorized administrator of Digital Commons @ Georgia Law. Please share how you have benefited from this access For more information, please contact [email protected]. CORPORATE RESTRICTIONS IN MEXICO AND THE UNITED STATES by DENNIS RIOS (Under the Direction of Charles R.T. O’Kelley) ABSTRACT Mexico and the United States have had throughout their history very different experiences in their international relations and thus different approaches towards foreign investment. Both Mexican and American corporations looking to invest in each others countries have to face several restrictions in their attempt to conduct business. These restrictions are constantly changing as the needs and circumstances in each country change. The United States throughout most of its history has had for the most part, a very open policy towards foreign investment. Mexico has been throughout most of its history, on the other side; adopting very restrictive measures towards foreign investment. This however has changed drastically in the last 2 decades. It is therefore important for corporations in these countries who conduct business which each other, or have the intention to do so, to have a good understanding of the restrictions imposed in these countries and how these might change. INDEX WORDS: Corporations, Corporate Restrictions, Foreign Investment in Mexico, Foreign Investment in the United States, N.A.F.T.A., Dean Rusk Center, LL.M., The University of Georgia. CORPORATE RESTRICTIONS IN MEXICO AND THE UNITED STATES by DENNIS RIOS J.D., Universidad Autónoma de Chihuahua, Mexico 2004 A Thesis Submitted to the Graduate Faculty of The University of Georgia in Partial Fulfillment of the Requirements for the Degree MASTER OF LAW ATHENS, GEORGIA 2007 © 2007 Dennis Rios All Rights Reserved CORPORATE RESTRICTIONS IN MEXICO AND THE UNITED STATES by DENNIS RIOS Major Professor: Charles R.T. O’Kelley Reading Chair: Gabriel M. Wilner Committee: Charles R.T. O’Kelley Gabriel M. Wilner Electronic Version Approved: Maureen Grasso Dean of the Graduate School The University of Georgia August 2007 iv DEDICATION To my mom, family and friends v ACKNOWLEDGEMENTS I would like to thank my family for supporting and believing in me. I specially want to thank my mom and grandmother for their unconditional love and guidance. I want to thank my friends for their encouragement and for believing in me. I would like to thank Professor Gabriel M. Wilner for all his guidance, teachings and friendship. I also want to thank Professor Charles O’Kelley for sharing his knowledge and wisdom in class, and for his support and guidance throughout this year. I would finally like to thank my friends and fellow classmates, especially Armando Gómez, Kaushal Mahaseth, Rebekah Rashidfaroki, and Elizabeth Treacy. vi TABLE OF CONTENTS Page ACKNOWLEDGEMENTS............................................................................................................V CHAPTER I INTRODUCTION .........................................................................................................1 II RESTRICTIONS IN MEXICO .....................................................................................2 A) XIX Century’s Foreign Interventions ..................................................................4 B) Post Revolution Foreign Investment ..................................................................6 C) Maquiladora Industry ...........................................................................................9 D) Foreign Investment Law of 1973 .......................................................................11 E) Foreign Investment Regulations of 1989............................................................15 F) Foreign Investment Law of 1993 to date............................................................16 G) N.A.F.T.A. .........................................................................................................21 III RESTRICTIONS IN THE UNITED STATES............................................................25 A) Federal Regulations............................................................................................27 B) State Regulations................................................................................................29 C) Antitrust Laws ....................................................................................................29 D) Safeguard Mechanisms ......................................................................................33 IV CONCLUSION............................................................................................................43 BIBLIOGRAPHY..........................................................................................................................44 1 CHAPTER I INTRODUCTION Nationality of a corporation is determined in a variety of ways, depending on the country. Globalization, a common term to us now has opened up the markets for firms which now take a transnational view, rather then a national view in searching for ways to fulfill the firm’s objective, shareholder wealth maximization.1 This thesis will focus on the restrictions corporations face when trying to invest in Mexico and the United States. My study will range from restrictions to incorporate, to restricted activities in each country. In order to understand the restriction imposed in both countries, and how they conduct business, I will provide some background analysis on the evolution of each country’s approach to foreign investment to better understand the stand point of both the United States and Mexico, and what factors influence their policy towards foreign corporations and their investment. I will focus on direct investment rather than indirect investment, giving only a brief analysis of indirect investment. I will also provide a description of some of the legal resources firms may use when faced with certain restrictions or conflicts. I will start with Mexico first and will then move to the United States. An analysis of the North American Free Trade Agreement signed by Mexico, the United States and Canada will be included, since its enactment has had a significant impact on how the United States and Mexico do business with each other. 1 R.H. COASE, THE NATURE OF THE FIRM (1937). 2 CHAPTER II RESTRICTIONS IN MEXICO Mexico’s governmental structure is very similar to the United States. It divides governmental power into the legislative2, executive3 and judicial branches; both at federal and state level. However, unlike the United States, Mexico’s states have less autonomy. The executive branch is by far the most powerful among the 3 branches. Even more so than in the U.S. The legislative process in Mexico resembles the one in the United States. The constitution grants congress the faculty to encourage promotion of Mexican investment and enact laws directed to the regulation of foreign investment.4 Article 89 compels the president to execute the laws passed by congress and it empowers him to direct foreign policy and make international treaties.5 The different types of organizational forms allowed by Mexican law are regulated by the Ley General de Sociedades Mercantiles6 (General Law of Mercantile Organizations) and the Civil Code.7 The most common way to invest in Mexico is through a corporation.8 There are two 2 The legislative branch is composed by Senators and Congress Men (called “diputados”) just like in the United States. 3 Presidents in Mexico are in office for 6 years and reelection is prohibited by the Constitution. This measure was adopted in the constitution of 1917 as a result of the Mexican revolution which overthrew President Porfirio Diaz who managed to stay in the presidency approximately 31 years by reelecting himself 5 times. 4 Constitución Politica de los Estados Unidos Mexicanos [hereinafter MEX. CONST.] art. 73 § XXIX-F “To make laws intended to promote Mexican investment, regulate foreign investment, transfer technology, and generate, disseminate, and apply scientific and technical knowledge that national development requires;” 5 See id. at art. 89-X. “Direct foreign policy and conclude international treaties, and submit them to the approval of the Senate: In the conducting of this policy, the head of the Executive Power will observe the following standard principles: self-determination of peoples, non-intervention, peaceful resolution of disputes, juridical equality of states, international cooperation for development, and the struggle for international peace and security.” 6 Ley General de Sociedades Mercantiles, Diario Oficial, Aug. 4, 1934, as amended June 11, 1992, reprinted and translated in COMMERCIAL LAWS OF THE WORLD: MEXICO 290-342 (Foreign Tax Law Publishers 1996) [hereinafter "LGSM"]. 7 Brandon W. Freeman, An Overview of Foreign Direct Investment in Mexico, 3-AUT NAFTA: L. & Bus. Rev. Am. 123, 133 (1997). 8 Id. 3 corporate forms allowed by Mexican legislation: Sociedad Anónima9 (S.A.) and Sociedad Anónima de Capital Variable10